Unsecured lending and bank charges were discussed at a meeting between Finance Minister Pravin Gordhan and the country's bank chiefs yesterday. But these controversial issues were played down in a statement from the ministry that started on an upbeat note.
"The theme of the meeting was the role of banks in South African society, highlighting the positive role banks could play in meeting the country's socio-economic challenges and contributing to the achievement of the vision as outlined in the National Development Plan."
However, the statement went on to express concern about "the rapid increase in unsecured lending" and called for banks to lend responsibly. "The meeting agreed that the poorer households were at risk of getting caught in a debt spiral."
The statement conceded that some of the personal lending was by non-bank financial institutions, including retailers. But it said banks could do more to ensure that they did not contribute to the overindebtedness of households.
A report earlier this year from PwC noted that earnings growth had been under pressure at banks. To meet upcoming liquidity requirements under Basel 3, banks need to increase the maturity structure of their deposits. The longer the term of a deposit, the higher the interest rate banks must pay, squeezing margins.
PwC said to compensate, the banks had boosted interest income by providing riskier loans, increasing the relative share of unsecured lending.
The issue became a political football. In April, SACP general secretary Blade Nzimande made a bitter attack on the banks. He said there had been "a huge increase in the number of unsecured credit transactions, a phenomenon similar to that which led to the housing bubble bursting in the US, triggering the current global capitalist crisis".
But the issue was played down by the Reserve Bank. Deputy governor Lesetja Kganyago said that while growth in unsecured lending had accelerated, it represented only R50 billion of the banks' R2 trillion worth of assets.
The central bank did not let the matter lie, but asked the banks for better reporting of their unsecured loans. And, in its latest banking supervision report, it warned that banks with "significant unsecured lending portfolios" could be obliged to have higher capital adequacy ratios.
The extent of the increase in this type of lending was highlighted earlier this month when Standard Bank reported that unsecured lending to customers who earn less than R8 000 a month grew to R3.4bn in June, from R761 million in June last year.
And the group said its unsecured lending book, including credit cards and business banking, stood at R78.5bn, 19 percent of gross advances.
The statement from the ministry also touched on banking costs, saying: "There is more to be done to ensure that South Africans have access to fair and cost-effective banking services."
Transaction costs have been on the agenda for many years. In August 2004, a task group appointed by the Treasury and the Reserve Bank released a report on the issue. Public hearings were held in November 2006 and in March and April the following year. And the authorities have continued to apply moral suasion.
Also on the agenda at yesterday's meeting was infrastructure funding. "Constraints to a smoother working relationship between the financial sector and government were identified and the meeting agreed that the minister of finance will co-ordinate attempts within government to remove these blockages."
In a separate statement, Jabulani Sikhakhane, the Treasury's chief director of communications, said the department would like to clarify the response by the minister of finance to a parliamentary question on the negotiations between South Africa and Swaziland over a possible loan of R2.4bn.
"The minister's response has been interpreted by some in the media to mean that South Africa will make the first payment to Swaziland next month (September). This is not true. Negotiations by financial authorities of the two countries are still under way.
"The September 2012 reference in the minister's reply… was in terms of an intended payment schedule, which, as the minister's response makes clear, was subject to the conclusion of negotiations by financial authorities."
Source: iol.co.za
Tags : loans, unsecured loans, loan risks, financial risks, south africa loans
Gr8i
"The theme of the meeting was the role of banks in South African society, highlighting the positive role banks could play in meeting the country's socio-economic challenges and contributing to the achievement of the vision as outlined in the National Development Plan."
However, the statement went on to express concern about "the rapid increase in unsecured lending" and called for banks to lend responsibly. "The meeting agreed that the poorer households were at risk of getting caught in a debt spiral."
The statement conceded that some of the personal lending was by non-bank financial institutions, including retailers. But it said banks could do more to ensure that they did not contribute to the overindebtedness of households.
A report earlier this year from PwC noted that earnings growth had been under pressure at banks. To meet upcoming liquidity requirements under Basel 3, banks need to increase the maturity structure of their deposits. The longer the term of a deposit, the higher the interest rate banks must pay, squeezing margins.
PwC said to compensate, the banks had boosted interest income by providing riskier loans, increasing the relative share of unsecured lending.
The issue became a political football. In April, SACP general secretary Blade Nzimande made a bitter attack on the banks. He said there had been "a huge increase in the number of unsecured credit transactions, a phenomenon similar to that which led to the housing bubble bursting in the US, triggering the current global capitalist crisis".
But the issue was played down by the Reserve Bank. Deputy governor Lesetja Kganyago said that while growth in unsecured lending had accelerated, it represented only R50 billion of the banks' R2 trillion worth of assets.
The central bank did not let the matter lie, but asked the banks for better reporting of their unsecured loans. And, in its latest banking supervision report, it warned that banks with "significant unsecured lending portfolios" could be obliged to have higher capital adequacy ratios.
The extent of the increase in this type of lending was highlighted earlier this month when Standard Bank reported that unsecured lending to customers who earn less than R8 000 a month grew to R3.4bn in June, from R761 million in June last year.
And the group said its unsecured lending book, including credit cards and business banking, stood at R78.5bn, 19 percent of gross advances.
The statement from the ministry also touched on banking costs, saying: "There is more to be done to ensure that South Africans have access to fair and cost-effective banking services."
Transaction costs have been on the agenda for many years. In August 2004, a task group appointed by the Treasury and the Reserve Bank released a report on the issue. Public hearings were held in November 2006 and in March and April the following year. And the authorities have continued to apply moral suasion.
Also on the agenda at yesterday's meeting was infrastructure funding. "Constraints to a smoother working relationship between the financial sector and government were identified and the meeting agreed that the minister of finance will co-ordinate attempts within government to remove these blockages."
In a separate statement, Jabulani Sikhakhane, the Treasury's chief director of communications, said the department would like to clarify the response by the minister of finance to a parliamentary question on the negotiations between South Africa and Swaziland over a possible loan of R2.4bn.
"The minister's response has been interpreted by some in the media to mean that South Africa will make the first payment to Swaziland next month (September). This is not true. Negotiations by financial authorities of the two countries are still under way.
"The September 2012 reference in the minister's reply… was in terms of an intended payment schedule, which, as the minister's response makes clear, was subject to the conclusion of negotiations by financial authorities."
Source: iol.co.za
Tags : loans, unsecured loans, loan risks, financial risks, south africa loans
Gr8i
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